Setting product prices is not an easy task. It is quite easy to get your pricing strategy wrong: set your prices too high and you will miss out on valuable sales; set them too low and you will miss out on valuable revenue.
Luckily, there are dozens of pricing models and strategies to help you better understand how to set the right prices for your audience and revenue goals.
Whether you’re new to business or a pricing pro, the tactics and strategies in this guide will help you set the right prices for your products.
Pricing Strategy
Pricing strategy is a model or method used to set the recent mobile phone number data best price for a product or service. It helps you choose prices to maximize profits and shareholder value based on consumer and market demand.
Pricing strategies take into account many factors of your business, such as revenue goals, marketing objectives, target audience, brand positioning, and product features.
Entrepreneurs and business owners often neglect pricing. They often look at their cost of goods sold (COGS), look at their competitors’ pricing, and adjust their own selling price by a few dollars. While COGS and competitors are difference between content writer and copywriter important, they should not be the focus of your pricing strategy.
The best pricing strategy will maximize your profits and revenue.
Before we talk about pricing strategies, let’s look at an important pricing concept that will apply no matter what strategies you use.
Price elasticity of demand
It is used to determine how a change in price affects consumer demand.
If consumers still buy a product despite price increases (e.g. cigarettes and fuel), the product is said to be inelastic.
On the other hand, elastic goods suffer from price fluctuations (for example, cable TV and movie tickets).
You can calculate price elasticity using the formula:
% Change in quantity ÷ % change in price = price elasticity of demand.
The concept of price elasticity helps you understand whether your product or service is sensitive to price fluctuations. Ideally, you want your dating data product to be inelastic and for demand to remain stable if prices do fluctuate.
Let’s look at some common pricing strategies. It’s important to note that these aren’t necessarily stand-alone strategies – many of them can be combined when setting prices for your products and services
Now let’s dive into the descriptions of each pricing strategy to find out what makes each one unique.
Competition-based pricing strategy
Competition-based pricing is also known as competitive pricing. This pricing strategy focuses on the existing market rate (or going rate) for a company’s product or service; it does not take into account the cost of their product or consumer demand.
Instead, competitors’ prices are used as a benchmark. Companies that compete in a highly saturated space may choose this strategy because small price differences can be a deciding factor for customers.
With competition-based pricing, you can set prices for your products:
- Slightly lower than your competitors;
- Same as your competitors;
- Slightly above its competitors.
Whatever price you choose, competitive pricing is one way to stay on top of the competition and maintain price momentum.
Cost-Based Pricing
Cost-plus pricing focuses solely on the cost of producing a product or service, or COGS.
To use the cost-plus method, add a fixed percentage to the cost of producing your product. For example, you sell shoes. The shoes cost $25 to produce, and you want to make $25 profit on each sale. You set the price at $50, or a 100% markup.
Cost-plus pricing is typically used by retailers who sell physical goods. This strategy is not a good option for service or SaaS companies, as their products typically offer much more value than the cost of creating them.
Dynamic pricing
Dynamic pricing is also known as peak pricing, demand pricing, or time-based pricing. It is a flexible pricing strategy in which prices fluctuate based on market and customer demand.
Hotels, airlines, event venues, and utilities use dynamic pricing, using algorithms that take into account competitors’ prices, demand, and other factors. These algorithms allow companies to change prices based on when and how much a customer is willing to pay at the time they are ready to buy.